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Richard Pelham received a Form W-2, Wage and Tax Statement, for
1996 from the trust in the amount of $7,500 and for 1997 from the
trust in the amount of $15,000.
The ownership of the business bank account was transferred
from Richard Pelham, individually, to the trust in December 1996.
Richard Pelham paid personal expenses out of the trust bank
account.
The Pelhams reported the income and expenses of Lake Lock &
Key from January 1 to October 19, 1996, on Schedule C, Profit or
Loss From Business, of their jointly filed Form 1040, U.S.
Individual Income Tax Return. Subsequent to October 19, 1996,
the trust reported the income and expenses of Lake Lock & Key on
Schedule C of its Form 1041, U.S. Income Tax Return for Estates
and Trusts. The trust reported no taxable income in either 1996
or 1997 because its net income from the lock and key business
operations was deducted as an income distribution deduction and
reported as such on a Schedule K-1, Beneficiary’s Share of
Income, Deductions, Credits, etc., to Richard Pelham as the
beneficiary. Richard Pelham reported the income distribution
from the trust on Schedule E, Supplemental Income and Loss,
Part III, Income or Loss From Estate and Trusts, of the Pelhams’
jointly filed Federal individual income tax return.
Richard Pelham owned the equipment used in the lock and key
business. Lease payments in the amount of $2,875 per year were
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Last modified: May 25, 2011